Google's European Union Problems Continue To Increase

Google had thought that it had solved the accusations that it was abusing market dominance in the European Union. No such luck as the Commission is now receiving back from interested parties their reactions to Google's proposals. There is, however, a distinct problem with what the Commission is doing:

Google Inc.'s hopes of settling its high-profile antitrust case in the European Union suffered a setback as rivals and consumer groups blasted its latest proposal for resolving the EU's competition concerns.

Critics said the Internet company's new proposals were only a modest improvement on an earlier offer and would do next to nothing to improve competition in online search.

The negative feedback intensifies pressure on the EU's antitrust chief, Joaquín Almunia, either to bring Google back to the negotiating table for a third time or to file a formal complaint, unleashing a legal process that could culminate in large fines for the U.S.-based company, according to EU competition-law specialists.

In fact, there's two problems with what the Commission is doing here. The first is the basic absurdity of asking Google's competitors what Google must do in order not to be fined. Companies like Microsoft and Foundem are competitors of Google's. What on earth is a bureaucrat doing asking them what restrictions should be put on the company? For the very idea of antitrust law is not to make sure that other companies can benefit but to make sure that consumers are not harmed. And seriously, no consumer has ever worried about whether the Foundem results appear in Google's index or not. If they want the Foundem results they'll go to that site.

It just does boggle the mind that the Commission is listening to the views of those who hope to gain from restrictions on what Google may do.

The other problem is more fundamental. The whole issue has arisen because there is a concern that Google is dominant in search in Europe. It certainly has a large share (90% in some countries) so perhaps it is indeed dominant. But there are two sorts of market dominance. One where it is achieved by either government granted monopoly or criminal enterprise and one where it is achieved by excellence. And Google is, of course, only even possibly guilty of the second. They're just very good at giving the customer what they want in their search results. It does seem bizarre to try and punish a company simply for being good at what they do.

But there's also a deeper economic point to this. Where dominance is achieved simply by giving the market what it wants this means that that dominance is of course contestable. And there's something we know about contestable monopolies and or dominance. Which is that the company with that dominance cannot exploit it: for if they do then competitors will arise and challenge that dominance. Another way of putting it is that if Google annoys its customers by the way that it presents search results then consumers will go off and use Bing instead at which point Google won't be dominant any more. The end result of this is that when a company has contestable dominance then we don't actually need to worry about that dominance. For the potential competition from new entrants will keep that dominant company on the straight and narrow.

Unfortunately the EU seems not to grasp this most basic of points about the economics of monopoly. Thus we end up with them applying the laws meant to prevent collusive monopolies to an entirely different situation.

Canada’s Competition Bureau is proceeding with a formal inquiry into Google Inc.’s search engine and advertising practices after a preliminary probe led investigators to believe the Silicon Valley giant could be abusing its position as the dominant search engine on the Web.

What is it with these bureaucrats who cannot distinguish between the two types of monopoly?